New study: crypto regulation fragmented, emerging markets lag

Rules for cryptoasset markets remain inconsistent across the world, despite the push from global standard-setting bodies, new research by the Cambridge Centre for Alternative Finance (CCAF) shows. 

Two years since the failure of algorithmic stablecoin Terra and the conglomerate FTX, policymakers the regulators are accelerating their efforts to tame the sector and enable innovation. 

But the landscape remains fragmented along jurisdictional lines and emerging markets and developing economies (EMDEs), where the case for regulation is arguably stronger, are lagging in the development of rules, according to the ‘2nd Global Cryptoasset Regulatory Landscape Study’.

“EMDEs are also more likely to introduce partial or full prohibitions on the use and provision of activities related to cryptoassets,” said Hugo Coelho, head of Digital Policy and Regulation at the CCAF. 

“This is probably due to a combination of factors, from lack of resources and knowledge to macro-economic instability,” he added. 

Over the past 2 years, the Financial Stability Board and the International Organization of Securities Commissions adopted extensive policy recommendations to regulate digital and crypto asset markets. 

The EU has moved ahead of other jurisdictions in adopting a comprehensive regulation, known as the Markets in Cryptoassets Regulation or MiCA, due to apply in full in January 2025. The UK has also adopted legislation empowering the regulators to introduce frameworks for the sector in the coming years. 

EMDEs are also more likely to introduce partial or full prohibitions on the use and provision of activities related to cryptoassets.

Hugo Coelho, head of Digital Policy and Regulation at the CCAF

Diverse approaches to cryptoassets expose regulators’ challenges

The report describes the range of approaches to classify and regulate cryptoassets, highlighting areas of divergence and convergence between jurisdictions. 

It demonstrates how the terms ‘cryptoasset’ and ’virtual asset’ have become the most widely used over the years, supplanting the term crypto currency initially used for Bitcoin. This suggests that regulators increasingly see cryptoassets like means of investment than of payment. 

Stablecoins, a distinct subset of cryptoassets that have their value pegged to fiat currencies, such as the US dollar, were found to be a major focus of regulators in Advanced Economies, with material convergence in rules.  

In contrast, the research demonstrates that initiatives to regulate decentralised finance and the use of blockchains in traditional financial markets are still embryonic.